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The ball lies in the court of Republicans, and it is more of a liability than an asset. The US is on a path to economic recovery and if the Republicans mess it up, they would incur the wrath of Americans.

19 Nov 2012

By Rakesh Neelakandan
Chances are miniscule that US would actually go off the so-called fiscal cliff, according to Martin Patrick, an economist from India.

“The issue would be settled.” he said adding that “the possibility lies in that direction.”

The ball lies in the court of Republicans, and it is more of a liability than an asset. The US is on a path to economic recovery and if the Republicans mess it up, they would incur the wrath of Americans.

“The Republicans may not create problems.” Patrick stressed. “They will not let the situation to deteriorate further, given the stark political realities.” he added.

Meanwhile, President Barrack Obama is optimistic that the issue would be resolved an optimism shared by many others: “I feel confident that a solution may be in sight," said House Democratic leader Nancy Pelosi recently to BBC News.

US House Speaker John Boehner also radiated positive sentiments on talks regarding the fiscal cliff issue.

Where the cliff-issue began 

When the debt-ceiling debate in US was at its height pumping up pressure to stratospheric levels, President Barack Hussein Obama, a member of Democratic Party and various Republican Congressmen led by John Boehner agreed to a new deal or law in August 2011.

As per this law, a Joint Select Committee aka 'Supercommittee' would come up with a bipartisan legislation by late November 2011 that would decrease the government's budget deficit by $1.2 trillion in a span of 10 years.

Now, if the Supercommittee failed in its endeavour, which it did, the law directed automatic initiation of across-the-board cuts that would be split evenly between defence and domestic spending, which would begin January 2, 2013. The cuts amount to $600 billion.

The Bush-era tax cuts of 2010 that was extended for another 2 years by another law --Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010—would also expire by the date when fiscal cliff issue would reach a crescendo aggravating the crisis.

Add to this the imposing of Affordable Care Act on new taxes on families who are making more than $250,000 a year ($200,000 for individuals) starting at the same time.

About.com says with some clarity:

"Among the laws set to change at midnight on December 31, 2012, are the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, the end of the tax cuts from 2001-2003, and the beginning of taxes related to President Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect."

Unless the President and Lawmakers find some way out and agree to some austerity or discrete tax hikes or a mix of both and drive away from the cliff, it is a financial Armageddon that would bump into us donning the garb of a recession.

More time to it?

"It is not impossible at all that they miss by a little and then come back and get it," said billionaire investor Ken Fisher to Reuters. "There's a minor risk ... but getting it done 10 days later is not really a big deal." he added.

Billionaire investor Warren Buffett has communicated to CNN that lawmakers could have as much as a couple of months next year to reach a deal.

"The fact that can't get along for the month of January is not going to torpedo the economy," he said. (rakesh@commodityonline.com)


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